Final Results

RICARDO GROUP PLC 13 September 1999 Ricardo Group plc Preliminary results for the year to 30 June 1999 HIGHLIGHTS * Profit before tax up 30% to £10.4m * Turnover up 16% to £95.5m * Earnings per share up 31% to 15.5p (1998: 11.8p) * Total dividend of 7.0p per share (1998: 6.6p) * Order book up 13% to £39.5m * US now profitable * Ricardo GmbH set up Commenting on the results, Sir Noel Davies, Chairman said: 'Last year the Board was optimistic about the future for Ricardo. It remains so. The achievements of the last two years provide an excellent base for sustainable profit growth.' Further enquiries: Ricardo Group plc ) (today) 0171 457 2345 Rodney Westhead, Chief Executive ) (thereafter) 01273 455611 Andrew Goodburn, Finance Director ) Gavin Anderson & Company Marc Popiolek/Laura Hickman 0171 457 2345 CHAIRMAN'S STATEMENT Review of the Year With the continued growth of the UK based businesses, the encouraging improvement in our North American activities and the first steps having been taken to establish a presence in Germany, Ricardo is now able to justify a claim to be amongst, if not the leading, international automotive consultancy business. In the UK, Ricardo Consulting Engineers at Shoreham has made further progress in terms of turnover, profitability and investment in facilities and people. Ricardo MTC accomplished the move to new premises near Leamington without any detrimental effect on its improving business performance. In North America, Ricardo Inc. has moved from loss to profit and its order book gives the Board confidence that this subsidiary is capable of consistent profitable growth for the foreseeable future. Financial Results and Dividend Recommendation Profit before tax was £10.4 million compared with £8.0 million last year. There were no exceptional items in either of the last two years. Turnover increased to £95.5 million from £82.4 million. Earnings per share increased by 31 per cent. to 15.5p from 11.8p. There was a very small outflow of cash in the year, after incurring capital expenditure of £13 million, and a year end gearing of 12.4 per cent. Your Board is recommending an increase in total dividend to 7.0p per ordinary share (1998- 6.6p) which, if adopted at the AGM, is covered 2.2 times (1998 - 1.8 times). Strategy The strategy in which the company focuses its attention on automotive consultancy has continued to be successfully implemented. Ricardo has and will continue to develop its people, technologies and fixed assets to better serve a broadening customer base. During the year the first phase of the new engine test facility at Shoreham was commissioned. Further office accommodation will be provided during the current year to accommodate the growth in numbers of people employed. At Ricardo MTC, plans have been made to further investment in the facilities. In North America, a commitment has been made to build additional test cells in order to support projects in the existing and prospective order book. In Germany, an initial presence has been established and the first employees engaged. People On behalf of your Board, I would like to thank all our employees for the contribution they have made to the outstanding achievements of the past year. The company continues to recruit high calibre talent into its organisation and is determined to support policies which maximise job satisfaction and provide excellent career opportunities. On 30 June 1999, John Baker retired from the Board. During the five years of his association with Ricardo, he has made a major contribution to the affairs of the company, especially during the period when he was Managing Director of Ricardo Consulting Engineers, when it more than doubled its profitability under his leadership. We are fortunate to retain his services as part-time Chairman of Ricardo Test Automation whilst that company deals with the down turn in ordering of capital equipment. He was succeeded on the Board by John Needham, previously a Technical Director at RCE. John Needham's extensive technical experience, knowledge and worldwide reputation are highly valued by our clients and his colleagues on the Group Board. Prospects I stated last year that your Board was optimistic about the future of Ricardo. It remains so. The achievements of the last two years provide an excellent base for sustainable profitable growth. CHIEF EXECUTIVE'S REVIEW Trading Another year of record profits underlines a very satisfactory year's trading and confirms our continued strategy of investment in people, research and development and first class technical facilities with which to serve the world's major automotive companies. We will continue to seek out opportunities to expand our services. USA I am delighted to report an encouraging year from the USA. After many years of losses, our target was to make a small profit and this was achieved. We have now progressed from a recovery to development phase in the USA and look forward to a satisfactory contribution from this location. The quality of the work we are now winning in the USA represents world class projects that would not be won if we were not able to fully support our clients wherever they have a major development centre. We now anticipate firm, profitable growth in the USA with increasing net margins of such size to justify further development of our US business in terms of both people and technical facilities. This is not something we would have contemplated two years ago. I give my grateful thanks to all those in the USA and UK who contributed so much to this important turnaround. UK In the UK, turnover, margin and profits have grown at all sites. RCE, the core of the Group, has produced a very strong financial performance. In January, the RCE business was reorganised to give greater emphasis to client projects and accountability for the conduct of those projects. This has facilitated the development of a number of younger managers, a practice which we will continue to develop. In July we formally opened the first phase of the advanced engine development centre and a new climatic rolling road. Together these will enable Ricardo to offer a vehicle calibration on testbed facility (VCOT) to our clients. The objective of this is threefold, to reduce the time taken for calibration, to improve the ability to regularly reproduce reliable data through use of a controlled environment and finally to reduce cost. The total cost of this investment is £7.0m. RCE has also been continuing our investment in research and development. One particular area of note is our increasing ability to model fuel cell behaviour and performance. This has attracted significant customer interest from the Far East. Despite the economic problems in Japan and Korea, RCE has received its first significant orders from Japan for a number of years and, once again, an increasing level of interest from Korea. We expect these markets to be of increasing interest in the coming year. At the end of the financial year, building work had commenced on further facilities at RCE to improve our vehicle engineering capability and planning permission granted for a further extension to the engine design office. These two new buildings will provide additional accommodation for a further 175 members of staff, the Group's most important asset. MTC has had a particularly good year, transferring to new, enlarged and improved premises in November and producing a strong financial performance despite the upheaval of the move. All aspects of this business are performing well and the year concluded with a robust order book. Further investment in facilities will be made in 1999/2000 as we seek to continue to improve the quality and added value of this business. RTA completed two major projects, one for the General Motors Proving Ground at Millbrook and a second being the advanced engine development centre for RCE. This has resulted in a reasonable financial turnout, improved upon last year. However, the new year starts with a weak order book and, in particular, insufficient activity with the major OEM's who are at the centre of the Group's development strategy. The RTA team are focused on these issues. Due to its current modest size, these problems at RTA are unlikely to have a noticeable impact on the Group as a whole. Germany We have now turned our attention to Germany, the centre of the European automotive industry. An office in Stuttgart has been established to provide a range of Ricardo services and an initial team of five electronics engineers recruited. Therefore this appointment underlines not only the future importance of Germany to the Group but also our increasing ability in the field of automotive electronics. Both of these developments will be built upon with further offices anticipated in Germany, located close to significant clients. People Our most vital resource is people, both for the technical delivery of client programmes, all of whom demand world class design and performance and also to enable Ricardo to develop, organically, geographically and technically. Although the recruitment of first class engineers is very competitive, our reputation and the opportunities for challenging work enables Ricardo to recruit a very significant number of additional staff each year. We have established incentive schemes which align all employees interests with those of the shareholders. We look forward to understanding the Government's replacement for these schemes, which we consider to be vital in providing incentives for our staff. Research and Development - Ricardo's contribution to a cleaner environment Our future depends on our ability to have the appropriate technologies available to our clients as they require them. To this end, we invest significant sums; 1999 £4.7m, 1998 £4.5m budgeted 2000 £5.4m in addition to the development of our technical facilities. One of the key challenges facing Ricardo's customer base is increasingly severe exhaust emissions legislation. For passenger cars, this has recently been coupled with targets to significantly reduce fleet average fuel consumption. This challenge accounts for a significant amount of Ricardo business where new engine, transmission and related vehicle technologies are required to achieve future emissions standards with improved fuel consumption. Vehicles produced from the year 2000 onwards for the European market will produce less than 10 per cent. of the emissions from a similar vehicle less than 10 years ago and further reductions from 2005 will continue this trend. For successful implementation, these new technologies must be affordable and continue to make use of the vast capital investments in manufacturing facilities already made by the automotive industry. To support this business, Ricardo continues to make significant investments in research and development and new test and development facilities, targeted at new, fuel efficient, low emissions concepts and new measurement technologies. Emissions from future passenger cars have now reached a level where detection and repeatable measurement has become a major issue. The new test shop capable of simulating engine operation from low temperature in real vehicle use, and a new vehicle test facility capable of test procedures proposed for future emissions legislation and new leading edge chemistry equipment to support analysis of new emissions reduction technologies, all support this initiative. Internally funded research and development has focused on demonstrating real world solutions for these future challenges, producing vehicles with new Ricardo technologies that provide improved fuel economy and exhaust emissions below the levels proposed for legislation from 2005 to 2010. Recent UK government figures show that substantial improvements in air quality will be delivered from market introduction of these technologies. The investments made by Ricardo will provide the capabilities to meet future customer needs whilst providing a major contribution to a cleaner environment. In recent months, Ricardo engineers have made a number of presentations to investors, analysts and potential investors on the likely course of future automotive technologies. These are beneficial in both providing a greater understanding of what Ricardo does and also in assisting in a greater awareness of the likely future of the automotive industry. Prospects for 2000 The principal UK businesses and the US business are enjoying strong order books and high margins. Our prospects for organic growth remain strong and we will continue to expand our services to the world's leading automotive companies. We face the future with sustained confidence, wholly committed to the automotive industry. CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 30 June 1999 Notes 1999 1998 £'000 £'000 Turnover 2 95,489 82,368 ----- ----- Operating profit 10,882 8,736 Net Interest (457) (724) ----- ---- Profit on ordinary activities before taxation 3 10,425 8,012 Taxation on profit on ordinary activities (3,206) (2,650) ----- ----- Profit for the financial year 7,219 5,362 Non-equity preference dividends (3) (2) ---- ----- Profit attributable to ordinary shareholders 7,216 5,360 Equity ordinary dividends 4 (3,261) (3,057) ---- ----- Amount transferred to reserves 3,955 2,303 ---- ----- Basic earnings per ordinary share 5 15.5p 11.8p Diluted Earnings per ordinary share 5 14.9p 11.5p All results relate to continuing activities. There is no material difference between the profit on ordinary activities before taxation and the profit for the financial year, stated above, and their historical cost equivalents. CONSOLIDATED BALANCE SHEET as at 30 June 1999 1999 1998 £'000 £'000 Fixed assets Tangible assets 35,198 27,109 Investment properties 980 1,215 Investments 493 292 ----- ----- 36,671 28,616 ----- ----- Current assets Stocks 2,789 2,708 Debtors 31,981 28,843 Cash deposit 340 340 Cash at bank and in hand 5,651 3,339 ------ ----- 40,761 35,230 Creditors - amounts falling due within one year (39,649) (27,647) ------ ----- Net current assets 1,112 7,583 ------ ----- Total assets less current liabilities 37,783 36,199 Creditors - amounts falling due after more than one year (1,826) (6,455) Provisions for liabilities (4,579) (2,937) and charges ----- ---- Net assets 31,378 26,807 ------ ---- Capital and reserves Called up share capital 11,831 11,772 Share premium account 4,564 4,312 Merger reserve 967 967 Long term incentive plan reserve 635 12 Profit and loss account 13,381 9,744 ----- ----- Shareholders' funds 31,378 26,807 ----- ----- Equity shareholders' funds 31,338 26,767 Non equity shareholders' funds 40 40 ----- ----- Shareholders' funds 31,378 26,807 ----- ---- This preliminary announcement was approved by the Board of Directors on 13 September 1999. CONSOLIDATED CASH FLOW STATEMENT for the year ended 30 June 1999 1999 1998 Notes £'000 £'000 £'000 £'000 Net cash inflow from operating activities 6 18,218 11,256 Returns on investments and servicing of finance Interest received 204 62 Interest paid (549) (1,081) Interest element of finance lease rental (21) (21) payments Dividends paid on non-equity shares (3) (3) ---- ---- Net cash outflow from returns on investment and servicing of finance (369) (1,043) Taxation (1,700) (1,039) Capital expenditure and financial investment Purchase of tangible fixed assets (13,279) (8,165) Sale of tangible fixed assets 159 2,115 ---- ----- (13,120) (6,050) Acquisitions and disposals Sale of Airflow Sciences 19 15 ---- ----- 19 15 Equity dividends paid (3,114) (2,983) ----- ------ Cash flow before use of financing (66) 156 Financing Issue of ordinary share capital 311 772 Proceeds from ESOP share options 127 - Purchase of own shares (328) (85) Capital elements of finance lease rental payments (102) (258) Loans repaid (192) (515) ----- ---- (184) (86) ----- ---- (Decrease)/Increase in cash 7 (250) 70 ----- ---- NOTES 1. Accounting policies This preliminary announcement has been prepared on the basis of the accounting policies as set out in the annual financial statements for the year ended 30 June 1999. 2. Turnover 1999 1998 £'000 £'000 Geographical Analysis United Kingdom 34,345 29,324 Rest of Europe 35,114 29,283 North America 19,294 15,161 Pacific Basin 3,806 5,954 Rest of World 2,930 2,646 ---- ----- 95,489 82,368 ---- ---- The directors consider that the Group operates in one business segment, serving various markets. The United Kingdom is the principal source of turnover and operating profits derived from external customers, and the principal location of the net assets of the Group. The only significant overseas operation, in the USA, is an integral part of the UK operation. As a consequence, it is not meaningful to show its turnover, operating results or net assets separately. 3. Profit on ordinary activities before taxation Profit on ordinary activities before taxation is after charging for research and development of £4.7 million (1998: £4.5 million) and depreciation of £5.05 million (1998: £4.84 million). 4. Dividends The final dividend is 4.7p (1998: 4.4p). This is payable on 26 November 1999 to ordinary shareholders on the register on 29 October 1999. 5. Earnings per share The calculation of basic earnings per ordinary share and diluted earnings per ordinary share have been calculated in accordance with FRS14 and comparatives have been adjusted accordingly and is based on the weighted average number of shares. Weighted average number of shares 1999 1998 '000 '000 Basic EPS 46,442 45,572 Diluted EPS 48,329 46,805 6. Net cash inflow from operating activities 1999 1998 £'000 £'000 Operating profit 10,882 8,736 Depreciation charges 5,047 4,840 Loss on sale of tangible fixed assets, properties held for sale and investment properties 2 88 Long term incentive plan charge 623 400 Provision for diminution in value of investment properties 235 - (Increase)/decrease in stocks (81) 391 Increase in debtors (712) (2,997) Increase/(decrease) in creditors 2,222 (202) ---- ---- 18,218 11,256 ----- ---- 7. Reconciliation of net cash flow to movement in net debt 1999 1998 £'000 £'000 (Decrease)/increase in cash (250) 70 (Decrease)/increase in debt and lease financing (55) 773 ---- ---- Change in net debt from cash flows (305) 843 New finance leases (18) (306) Translation difference 295 (17) ---- ---- Movement in net debt in year (28) 520 ---- --- Net debt at 1 July (3,871) (4,391) Net debt at 30 June (3,899) (3,871) ------ ---- 8. Analysis of net debt Incept- At 1 ion of At 30 July Cash finance Exchange June 1998 flow lease movement 1999 contracts £'000 £'000 £'000 £'000 £'000 Cash at bank and in hand 3,339 2,366 - (54) 5,651 Overdrafts (40) (2,616) - - (2,656) --- ---- --- --- ---- Sub total 3,299 (250) - (54) 2,995 Debt due after 1 year (6,305) 4,217 - 313 (1,775) Debt due within 1 (609) (4,360) - 22 (4,947) Finance leases (256) 88 (18) 14 (172) --- ---- ----- ----- ---- Total (3,871) (305) (18) 295 (3,899) --- ----- ----- ----- ---- 9. The figures for the year ended 30 June 1999 are unaudited. The figures for the year ended 30 June 1998 are an extract from the Group's statutory accounts, which have been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain any statement under section 237 of the Companies Act 1985.

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